Can the Private Sector Save Vietnam?

Every five years, amid the red banners, choreographed pageantry, and lofty speeches of its party congress, the Communist Party of Vietnam releases two staid policy documents: a political report and a socioeconomic development plan. Although infused with party rhetoric, these texts are more than ideological pronouncements. They define the governing agenda for the next five-year political cycle. In a system in which formal politics is opaque, these documents provide the clearest sense of what the leadership wants to do. The latest documents, released at the party congress in January, reveal that Vietnam is headed in a new direction. The party is transforming the political model that has governed the country for the past four decades. The 2026 documents increase the party’s direct role in managing the country’s affairs while also embracing the private sector and sidelining state-owned enterprises. Vietnam’s leaders are betting that the country needs a new growth plan—one that marries centralized political control with private-sector-led development—in hopes of reaching the ambitious annual growth target of ten percent of GDP. This reorientation comes at a precarious moment for Vietnam and its ruling Communist Party. Since market reforms began in the late 1980s, Vietnam has relied on a mix of small private firms, which manufacture low-cost goods mostly for the domestic market; multinational corporations that produce the bulk of Vietnam’s exports; and large state-owned enterprises, which are economically inefficient but that the party relies on to redistribute resources to poorer regions of the country. This hybrid model has increased incomes, reduced poverty, and integrated Vietnamese industry into global supply chains. But as Vietnam emerged from the COVID-19 pandemic in 2021, the limits of this arrangement were increasingly apparent. State-owned enterprises had failed to become globally competitive, and private firms lacked the capital to scale up, invest in technology, or compete abroad. This left Vietnam dependent on multinational corporations. An emerging consensus developed within the country’s leadership that the existing economic model would no longer sustain rapid growth and distribute its benefits. Policymakers experimented with piecemeal efforts to address these weaknesses. They tried to restructure state-owned enterprises to make them more competitive, improve the business environment by streamlining regulations, and deepen capital markets by developing the corporate bond market and stock exchanges. But these reforms repeatedly stalled. Powerful bureaucratic and provincial interests slowed implementation because they benefited from and believed in the existing role of state-owned enterprises in Vietnam’s economy. When To Lam took power as the general secretary of the Communist Party, in 2024, many observers feared that it would spell the end of Vietnam’s attempts at economic reform. They expected that Lam, who formerly led the Ministry of Public Security, would prioritize national security objectives over economic goals. Their fears seemed warranted when Lam set about consolidating power and authority. He also benefited from ongoing institutional changes that have strengthened party control over governance and from an anticorruption campaign that weakened political rivals and their patronage networks. Within 18 months, Lam had become the most powerful Vietnamese leader in four decades. But as this year’s party congress made clear, Lam is using his newfound power in unexpected ways. Vietnam’s leadership is positioning itself to drive an economic transformation that promotes private businesses and diminishes the role of state-owned enterprises—a stark transformation of the country’s past approach to growth. It is a bold and risky gamble that could either unleash the country’s latent potential or leave it to face the risks of internal degradation that have befallen many highly centralized political regimes elsewhere. As it faces an increasingly uncertain global trade environment, Vietnam is betting that a new form of party-led capitalism will guide it forward. THE POWER BROKER For much of the post–Cold War era, Vietnam maintained a system of collective leadership designed to prevent any single politician from dominating the state. Vietnam divided political authority among four pillars: the general secretary of the Communist Party, the president, the prime minister, and the chair of the National Assembly. Power was also distributed among regional interests through voting blocs in the party’s Central Committee, its most important decision-making body, in which provinces held nearly half the seats. This system often moved slowly, but it proved very stable. The system of collective leadership has been severely weakened. Lam entered January’s party congress in a dominant position, a result of consolidation since he took office and larger trends in Vietnamese politics over the past decade. In 2016, the party launched a sweeping anticorruption campaign, known officially as Blazing Furnace. It has disciplined more than 168,000 party members and removed over 100 senior officials, including two sitting presidents and numerous deputy prime ministers, provincial leaders, ministers, and members of the Politburo. Lam, who was involved in many of these investigations as minister of public security, has benefited from this campaign since he became general secretary. By sidelining political rivals, unraveling entrenched patronage networks, and stiffening the party’s control over its members, the anticorruption campaign has shifted power toward the top of the party hierarchy. Lam’s authority has also increased as the institutions that the party controls have become more directly involved in policymaking and policy implementation. Since December 2024, a Politburo-led central steering committee, rather than state ministries, has coordinated national policy on science, technology, and innovation. Politburo resolutions have assumed greater prominence in economic policymaking. And new party directives, such as Regulation 196 passed in June, strengthen the authority of party committees within state firms, reinforcing the party’s control of corporate governance. The system of collective leadership has been severely weakened. The policy documents from the 2026 party congress show how the party is taking on a greater role. Using machine-learning-assisted text analysis, we assessed the frequency and prominence of key words and concepts in the political reports and socioeconomic development plans of each party congress of the past quarter century. Because these documents set the governing agenda, how often they invoke the party signals how directly the party intends to steer policy. Mentions of the party in official political reports rose from fewer than 80 per 10,000 words in 2021 to nearly 100 per 10,000 words in 2026. In the socioeconomic development plan, the frequency increased from about four mentions per 10,000 words to more than ten over the same period. The clearest sign of how much power Lam had consolidated appeared in April, when the National Assembly broke precedent and appointed him as president of the country for a full five-year term in addition to his position as general secretary of the party. In the past, Vietnam had instituted such an arrangement only temporarily following a crisis, such as when the sitting president unexpectedly died. Although the presidency is constitutionally subordinate to party leadership, it carries important responsibilities in diplomacy and national security. Lam’s appointment formally consolidated his control over both the party and the state, creating a level of personal authority unprecedented since the party undertook major economic and political reforms, known as Doi Moi, in the 1980s. SAVING PRIVATE ENTERPRISE This consolidation of power, however, is not an end in itself. The party is now positioned to take on a greater role in coordinating policy, managing the bureaucracy, and directing the economy than in the past. In particular, Lam’s administration is using its power to pursue an economic strategy centered on upgrading industry and expanding domestic private enterprise. Adopting such a strategy was extremely challenging under the old political system in which power was highly dispersed and major policy shifts required bargaining among rival groups with significant clout. But with Lam more firmly in charge, he can push through more momentous economic changes. The policy documents from January’s party congress make this shift clear: references to the private sector increased dramatically, while language about the state sector decreased. Documents from past party congresses consistently described state-owned enterprises as the leading force propelling Vietnam’s economy; since May 2025, however, when the Politburo released Resolution 68, a major document promoting the development of private enterprise, the party has embraced the idea that domestic private firms, not the state sector, are “the most important driving force” of the economy. The number of passages in this year’s party congress documents related to private-sector economic activity was more than double those in the documents from 2021. Since the Doi Moi reforms, Vietnam’s success as an exporter has depended on foreign multinational corporations rather than on domestic companies. Foreign firms produce nearly 70 percent of Vietnam’s exports, which has boosted the country’s GDP but has not created a stable foundation for longer-term growth. Foreign companies often rely more on imported intermediate inputs in production than domestic firms do, and they are less likely to transfer technology and knowledge that could improve local companies’ productivity. Foreign investors in Vietnam are also more likely to leave if local costs rise, which discourages capital investment and hinders the growth of innovative domestic companies that could then move up the value chain and compete on technology. In addition, the Vietnamese private sector remains fragmented: it is full of small firms that lack the capacity to invest in research and development and to meet the quality standards needed to participate in global supply chains. Vietnam’s leadership views the private sector as the country’s primary growth engine. The party’s new approach is to cultivate a set of national champions rooted in the private sector rather than promote inefficient state-owned conglomerates. Hanoi has opened many sectors once dominated by state monopolies to private competition. Major infrastructure projects traditionally reserved for state-owned enterprises, including railways, airports, and energy production facilities, are now open to bids from private contractors. And although state-owned enterprises remain important in sectors such as finance and telecommunications, the country has been pursuing what Vietnamese economists call equitization, or restructuring some state-owned enterprises by converting them to joint-stock companies with private shareholders. This forces firms to operate with greater market discipline and allows the government to more effectively monitor and curb waste and abuse of state resources. Since May 2025, when the Politburo released Resolution 68 on the need to develop the private sector, policymakers have passed concrete measures to improve conditions for private firms. These include corporate tax exemptions for research and development, preferential and discounted access to industrial land, expanded credit support, limits on inspections and audits, streamlined licensing procedures, and stronger legal protections against arbitrary regulatory enforcement. The reforms explicitly target large private enterprises in an effort to make them internationally competitive. Unlike state-owned enterprises, which are insulated from market pressures, these national champions remain subject to competition, budget constraints, and private ownership incentives. The state can provide support while relying on market mechanisms to allocate capital and reward innovation. Vietnam is also redirecting its industrial policy toward higher-value sectors, including semiconductors, digital infrastructure, renewable energy, and advanced manufacturing. The government has committed at least three percent of the state budget to science, technology, innovation, and administrative modernization, including a goal of training 50,000 semiconductor engineers by 2030. It has offered tax incentives to invest in chip design, packaging, and testing, and is reviving plans to expand nuclear power, which were previously halted after safety concerns following the meltdown at the Fukushima nuclear reactor in Japan, in 2011. In the past, Vietnam’s industrial policies relied primarily on tax incentives and low-cost labor to promote growth. Now, the focus on areas such as nuclear energy aims to reduce major infrastructure bottlenecks that have hindered industrial upgrading. The party is also revamping its bureaucracy to help the private sector. To reduce red tape and improve government efficiency, leaders have merged ministries (reducing the number from 18 to 14), consolidated provinces (from 63 to 34), and digitized administrative procedures. Between late 2024 and mid-2025, Vietnam laid off or offered early retirement to more than 100,000 civil servants. The hope is that lowering the costs of doing business and accelerating policy implementation will encourage private investment and let reforms take hold before entrenched interest groups, which may lose out in these reforms, can coordinate political resistance. In April, the National Assembly further encouraged these reforms by electing Le Minh Hung, a technocrat and former central banker, as prime minister—a choice that reinforces the leadership’s emphasis on macroeconomic management, financial stability, and state capacity. BREAKING NEW GROUND Many observers have drawn parallels between Lam and Chinese leader Xi Jinping, both of whom have consolidated political authority, strengthened party control over the state, and pushed massive anticorruption campaigns that reshaped elite politics and marginalized some of their political opposition. Observers often treat Vietnam as a replica of China, assuming that Hanoi follows in Beijing’s footsteps. Yet when it comes to economic strategy, Vietnam is taking its own path. Under Xi, China has embraced the state sector. Beijing has promoted the consolidation of state-owned conglomerates into national champions, expanded party influence inside private firms, and directed enormous flows of credit and industrial support toward state-dominated sectors such as semiconductors and telecommunications. Analysts in China summarize this trend with the phrase “the state advances, the private sector retreats”—a reversal of the market-led reforms that many believed Xi would pursue when he came to power, in 2012. Vietnam’s leadership, by contrast, increasingly views the private sector as the country’s primary growth engine. Vietnam is embracing the private sector because it has to. Its leaders understand that it lacks many of China’s structural advantages—an enormous domestic market, large policy banks and abundant capital, and an extensive manufacturing ecosystem—which have allowed Beijing to build globally competitive state-backed giants capable of dominating entire industries. Vietnam’s economy is far smaller, more trade-dependent, and more reliant on foreign supply chains. Attempting to build a development model centered primarily on state firms would place enormous fiscal pressure on the government while slowing innovation and productivity growth. The distinctive model that Vietnam is developing uses centralized political authority to support private-sector expansion, technological improvement, and integration into global markets. Rather than resembling Xi’s China, Vietnam’s emerging model bears closer resemblance to the East Asian developmental states of South Korea and Singapore, combining centralized political authority with an explicit strategy of fostering globally competitive private firms. Unlike classic East Asian developmental states led by politically insulated bureaucracies, however, Vietnam is placing the Communist Party itself at the center of its strategy. In Vietnam, party institutions, not technocratic agencies, are responsible for aligning ministries, local governments, and state-owned enterprises with national development goals. LONELY AT THE TOP The environment in which Vietnam is pursuing a new growth model is less favorable than its leaders might wish. The same openness that powered the country’s rise for the past four decades now creates growing vulnerabilities. Vietnam’s economy depends heavily on exports, foreign investment, and global supply chains, making it unusually exposed to geopolitical shocks and disruptions in world trade. The new growth model also carries its own inherent dangers. Vietnam’s previous system of collective leadership, which dispersed authority across regions, ministries, and party institutions, slowed decision-making, but it also forced competing interests inside the party to bargain with one another and to compromise. Provincial leaders, technocrats, and different blocs within the party each possessed enough influence to slow down policies they opposed. Because no faction could act without wider buy-in, leaders had to distribute economic gains widely to preserve political stability during decades of growth. Centralized authority will allow the government to implement reforms more quickly and pursue industrial policy more aggressively because there are fewer constraints on its power. But it reduces the number of institutional checks in place to help officials correct policy mistakes and manage regional grievances. As power becomes more concentrated, the system may become less able to respond to economic shocks or uneven development outcomes. Other highly centralized developmental regimes, such as those in the latter half of the twentieth century in the Philippines under President Ferdinand Marcos and Indonesia under President Suharto, produced fast growth in the years immediately following political consolidation, but they stumbled when leaders with unchecked power made costly mistakes that proved difficult to correct. The Communist Party in Vietnam has justified decades of one-party rule through rising living standards and sustained growth. Now, its leadership is attempting one of the most ambitious—and risky—political-economic transitions in recent memory in Asia. It has set a target of sustaining annual GDP growth of roughly ten percent through 2030. If Vietnam’s new party-led capitalism succeeds, the country could finally become an economic powerhouse in Southeast Asia. But if it fails, Vietnam could face economic stagnation, and its political system could falter. With authority now concentrated at the top, Vietnam’s future depends on whether stronger leadership delivers lasting reform or weakens the self-correcting mechanisms that stabilized the country during its decades of growth. You are reading a free article Subscribe to Foreign Affairs to get unlimited access. - Paywall-free reading of new articles and over a century of archives - Six issues a year in print and online, plus audio articles - Unlock access to the Foreign Affairs app for reading on the go Already a subscriber? Sign In